Problems with the Status Quo

Hundreds of billions of dollars have been spent on public welfare and social service programs over the past 30 years. Michigan is consistently among the most generous states, andwill devote nearly 30 percent of its $21 billion gross budget to this area in 1992. [1]

Whereas once the welfare debate focused simply on the short-term "good" that assistance could accomplish for specific needy people, that debate has now matured as the facts and figures suggest that the long-term harm has been substantial. Below are two of the main problems that have contributed to the emerging consensus that changes are needed:

  1. Welfare undermines the institution of marriage and hence, actually increases and perpetuates the very poverty it is intended to remedy.

    Marriage and the marriage contract were once the pillars of strong family life in which the working husband was the typical breadwinner. Most people would acknowledge that anything which encourages divorce and discourages marriage, or prompts the father to leave the home and his responsibilities, would tend to exacerbate poverty. That's precisely what welfare programs have done, as evidenced by the fact that today, slightly more than half of all families below the poverty line are headed by females with no husband present.

    High benefits are one cause of this problem. Dr. Robert Hutchens of Cornell University has shown that a 10 percent increase in AFDC benefits in a state will cause a decrease in the marriage rate of all single mothers in that state by 8 percent. [2] Significantly, Michigan's average monthly AFDC payment of $459 is exceeded by only one Great Lakes neighbor, Wisconsin, which pays $517. Ranking 14th in the nation, Michigan's generous payments are well above Illinois' $367, Ohio's $334, and Indiana's $288.

    Public policy today has built-in financial incentives that induce low-income single individuals to have children out-of-wedlock and refrain from marrying or remarrying. Similar incentives also encourage existing families to break up. If a poor young couple have a child, welfare will step in to help mother and child. But if the two marry and the father goes to work, benefits are cut and the government starts to tax the father's earnings. In effect, the policy "informs" the single mother that she will continue receiving checks as long as she doesn't work and does not marry a male with a job.

    Add to this the destructive "no-fault" divorce rule as it exists in Michigan and what results is a policy that "says" to poor people, "Don't work, don't marry, abandon your responsibilities, have children, leave the family, and get a check." In fact, the more one is "faithful" to these prescriptions, the bigger the check.

    Overlooked in the welfare debate is the need to strengthen the role of churches and private charities. To the extent that government has become the provider and counselor to the welfare poor, we have lost the emphasis that these private groups used to place on moral values, parental responsibility, and the sanctity of the marriage contract. Public policy which encourages a restoration of the role these groups once played in American society would be a step in the right direction.

    Clearly, the erosion of the family in Michigan and across America is exacting a horrendous toll on society, not just in terms of the costs and dehumanizing effects of public welfare, but also in terms of crime, substance abuse, child neglect, and a general collapse of values, the very glue that holds us together. Nothing could be more important for the long-term health, even survival, of American life than the strengthening of the family unit.

  2. Welfare, rather than the temporary way-station to personal independence and self-reliance it was meant to be, has instead become a trap and a permanent lifestyle for too many people.

    Dependency has a deeply demoralizing effect upon the psyche of almost everyone who falls victim to it. Figures from the Michigan Department of Social Services indicate that 40.4 percent of AFDC recipients are on assistance for between 6 and 10 years over a 10-year period.

    The welfare system deliberately prevents its clients from earning a sufficient income while receiving benefits. When welfare recipients find work, they face not only the loss of their benefits, but the prospect of incurring work-related expenses and paying taxes as well. "In America today," says Secretary of the U.S. Department of Housing and Urban Development Jack Kemp, "a welfare mother has to earn $15,000 to $18,000 to bring home the equivalent of the average tax-free welfare payment." [3]

    Minor incentives introduced when federal law was changed in 1988 simply haven't had much effect. The transition from dependency to employment is still a painful and costly one for welfare recipients, whose "marginal tax rate" for going to work can far exceed what the wealthiest American pays in taxes on the next dollar he earns.

    Reducing benefits as one begins to earn an income by working has the effect of levying a tax on work. In that sense, the highest "tax" rates in America today are not paid by the rich, but by the welfare mother or unemployed father who wants to take a job.

    Another way to think of this built-in disincentive is to consider the value of a minimum wage job vis-a-vis welfare benefits. A full-time minimum wage job today, though it may well represent an opportunity – a start up the economic ladder – nonetheless pays well under $10,000 and may not include any health benefits. The total value of all assistance that can accrue to a welfare recipient in Michigan is in the range of, on average, $14,000 per year. Assume for a moment that because of few skills, inexperience, or poor education, a minimum wage job happens to be the best the market offers a particular welfare recipient. Why should that person entertain that option for even a second? Staying on welfare pays more, even though doing so means the recipient may never get on even the bottom rung of the economic ladder of success and self-reliance.

    On top of this work penalty, Michigan's overall tax and regulatory burden continues to close doors to the poor. The fourth highest property taxes in the nation have helped to put home ownership beyond the reach of many and have crushed the ability of would-be entrepreneurs to start new businesses. In Detroit, home to one of the most oppressive anti-enterprise climates of any major city in America, public policy seems almost intended to manufacture poverty. Part of the solution to the welfare mess has to be the kind of new directions represented by cuts in public spending and taxes, privatization, deregulation, and the removal of barriers to work, incentive and private property.

    Additionally, the government monopoly school system is perpetuating poverty in our inner cities. A shoddy education in a violent environment is no way for the poor to escape their plight. Measures to improve education are vitally necessary, and all the evidence here suggests that more money isn't the answer, and that things like choice, competition, accountability, and access to private schools are key pans of the answer.

    Policies which strengthen the family and create incentives for getting off welfare will in the long-run prove beneficial to the individuals who need help and the taxpayers who are picking up the tab. Michigan must act now to put such policies into effect.